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The Week Ahead: Climate risk and the role of investors

Tom Hudson, Miami Herald on

Published in Business News

Earth Day will bring together leaders of more than three dozen countries to talk climate. And while the state of the environment will be the focus of the discussions, it’s the economy that will drive decisions.

Long-term investors should be paying attention. After all, companies are under increasing pressure to acknowledge and disclose the risks they face from a changing climate and any role they play in contributing to a warming planet.

After four years of a light-touch regulatory environment, in March, the Securities and Exchange Commission invited public comments on updating the agency’s rules for what climate risk information companies should have to let investors know about. It’s not the first time the Wall Street regulator has focused on climate risk for companies. It released a 29-page guidebook 11 years ago “to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences” to investors.

As Bloomberg pointed out, since then there has been no significant enforcement action taken against companies for not disclosing their climate risk to investors.

 

President Joe Biden’s climate summit on Thursday and Friday is part of the administration’s climate ambitions. The efforts won’t be confined to diplomacy. And it goes beyond investor disclosures.

The Federal Reserve is focusing on climate and finance as well. This year it formed an internal group to study the financial and economic risks posed by climate change. The Central Bank is an independent agency from the White House. However, the central bank’s inclusion of climate risk to assess the financial stability of banks and the economy is significant. From mortgages in flood-prone neighborhoods to bank loans to fossil fuel and green energy firms — the Fed’s approach will be far-reaching.

A warming planet is an existential crisis. Investors play a central role in pricing in risk and funding potential solutions.

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